Presentation on theme: "GLOBAL AUTO INDUSTRY Dr. Clive Vlieland-Boddy. Current Views To provide highly attractive and environmentally friendly products which satisfy global demand."— Presentation transcript:
Current Views To provide highly attractive and environmentally friendly products which satisfy global demand Ensure sustainability demand. Develop new technological standards. Ensuring competitiveness. Developing employment opportunities within a global market
Current Views For the next years the following R&D areas are of major interest for the automobile industry: Urban Mobility and Transport Safety Applications in Co-operative Systems Alternative Fuels Suitable Materials Electrification of the Vehicle Ecological and Efficient Manufacturing.
Urban Mobility and Transport Advanced driving-assisted vehicles Energy efficient transport of people and goods with improved logistics Safety of urban road transport Traffic management Market implementation of innovation.
Alternative Fuels Scenarios for alternative fuels and strategies for their market introduction Preparation of specifications for alternative fuels Optimisation of power-trains with alternative fuels Integrated safety of alternatively-powered vehicles
Electrification of the Vehicle Affordable and safe battery systems with improved performance Post Lithium-ion technologies Efficient vehicle and energy management system High voltage systems and components Connection to the infrastructure Field tests and demonstrators Road map for market penetration of the electric vehicle.
Ecological and Efficient Manufacturing Innovative green painting processes Green manufacturing of vehicles and sub- systems Affordable manufacturing of green vehicles Digital manufacturing for integrated product and process development Virtual engineering for product and process performance management over the whole lifecycle.
Who and Where! In 2007 just 10 OEMs were responsible for 75% of the world output Further consolidation is expected. New entrants from China and India will change the map.
The declining fortunes of the Big Three Reflect the larger trend toward a U.S. economy based more on services and ideas and less on manufacturing. The forces of globalism where corporations with worldwide operations have moved manufacturing to places where labour is cheapest and where labour laws are least stringent. The big questions facing the Big Three is whether they can continue to operate with labour contracts that, despite recent modifications, largely reflect a bygone era of union strength.
The automobile sector is currently facing 3 main problems The lack of funding creates difficulties for the consumer to finance the purchase of a new car; The markets are in overcapacity; The evolution towards an aging and a no car society is predictable on the structural long-term.
Responses to address these issues Government Financial Assistance in the short- term. Elaborate short-term schemes to try to stimulate demand. Restructure the sector on the long term. Finance R&D and clean cars. Promote efficient use of transportation.
The scale of the collapse: the industry drives off a cliff 23
Detroits disproportionate suffering: the Big 3 hit hardest 24 GM + Ford + Chrysler Transplants and Imports US Sales: Detroit share falls from 75% in 1985 to ~45% in 2009e
Detroits disproportionate suffering: 2 out of 3 file bankruptcy General Motors, after its bankruptcy, is now owned by a consortium of the US and Canadian governments, the UAW, and former bondholders Chrysler, after its bankruptcy, is now owned by a consortium of the US and Canadian governments, the UAW, and Fiat –Still burning cash, perhaps $500 mm per month? Ford avoided bankruptcy, but primarily by mortgaging itself in 2006 –Roughly $25 billion raised; even the Blue Oval symbol and trade names such as Mustang were pledged 25
But shouldnt we have seen this coming? In market share… Source: Wards AutoInfobank
… and in profits? Source: Moodys, Company Reports
Causes of the decline and fall Short-term factors: debt, debt, and more debt Medium-term factor: drunk on trucks? Long-term factor: outmoded basic beliefs 28
29 Short-term factor: debt. The case of General Motors Companies facing cyclical markets should not carry a large burden of debt, in order to survive downturns. GMs debt exposure (year end 2007, prior to current crisis): Owed to banks: long-term bonds: $33b Owed to workers: retiree health care:$47b Owed to workers: pensions:$11b Owed to suppliers: (negative) working capital: $34b Owed to dealers: (US only) excess car inventory: $15b … on revenue of some $180 billion Source: company financial statements; all figures exclude financing captive (GMAC)
30 Illustration of GMs debt problem: Toyota comparison Toyota (and Honda similarly) can turn to its business partners for funding to get through a downturn; GM drew down all its sources, and so had to turn to Washington for funds. Debt exposure (year end 2007, prior to current crisis): GMToyota Owed to banks: $33 $4 Owed to workers: RHC$47 $0 Owed to workers: pensions:$11 $6 Owed to suppliers: $34 $13 Owed to dealers: $15 $0 … on GM revenue of some $180 billion, Toyota some $250 billion … and GM equity of negative $35 billion, Toyota positive $115 billion Source: company financial statements; all figures exclude financing captives; Toyota FY ending 3/2008
31 Medium-term factor: the truck boom leads to a car bust. The truck boom (SUVs and pickups) earned the Detroit 3 vast profits… … which they used to fund adventures rather than reinvest in the core business… … leading to relatively neglected and uncompetitive car product lines, once the truck boom ended. Lack of R & D!
32 The truck boom of 1990-2005 It is hard to overstate the shift to light trucks in the USA over the years (due to regulation, consumer preference, and marketing). Source: Sean McAlinden from Wards data Millions of units sold, US market
33 The truck boom of 1990-2005 With profitability assured by the cash flow from trucks, Detroits Big Three spent much of the 1990s engaged in all sorts of adventures… not necessarily related to the core business of making cars. Ford bought Aston Martin, Jaguar, Land Rover, Volvo, and Hertz Embarked on a series of downstream business extensions (e.g. purchasing car maintenance companies, collision repair shops, and salvage yards
34 The truck boom of 1990-2005 GM started and then stopped EV-1, Diverted large sums into fuel cell research, Spun off Delphi, Sold Hughes Aerospace, Aggressively expanded GMAC into home mortgages, Bought Daewoo Motors*, g Got into a deal with Fiat and then back out, Starved most of its alliances (Suzuki, Isuzu, Saab)
35 The truck boom of 1990-2005 Chrysler of course cashed out (to the great benefit of its shareholders: The $36 billion paid would today buy Ford plus GM plus Daimler itself, with about $6 billion left over) by selling itself to an unsuspecting Daimler
37 Styling as a differentiator: reduced impact? They all look the SAME
Scale trumps efficiency Definition: economies of scale are the key to profitability Strategy: pursue capacity via organic growth or acquisition; and for any given capacity, always produce the incremental unit Successful when: fixed costs of product development and manufacturing are very high, market is in a growth phase, price discrimination is easy 38 Economies of Scale are KING!
Genesis of belief: from the Model T onward into the 1980s: production typified by: inflexible large production lines, product development manual and complex, market steadily growing, external styling and branding to conceal identical mechanicals under varying model names 39 Past Beliefs of The Industry
Market Saturation Once you have saturated the home market then you saturate all foreign emerging markets. Then WHAT!
Now the move is to waste minimization and flexibility, from scale maximization; Developed markets have matured, reducing capacity to absorb excess units New competitors and smarter consumers break the pricing paradigm 41 This belief no longer applies
Maximizing production leads to a belief that all units are equal, Costs of complexity are ignored: Example: GM sells fewer cars than Toyota, but stocks roughly three times as many part numbers, at great cost. 42 Impact of the belief in scale
OEMs push into developing markets, despite low per-car profits to offload excess capacity With a focus on units moved rather than on profits made, management lose sight of the fundamentals, This leads to strategy by slogan (e.g. first mover advantage); Evaluation of winners and losers by unit share, not by bottom line results; Where is the visionary CEO? 43 Impact of the belief in scale
Pursuit of scale at all costs leads to M&A activity in order to grow But most M & As in this industry FAIL 44 Impact of the belief in scale
The Poor Track Record of Western OEM Mergers (partial list) GM-Saabbankrupt GM-Suzukiexit GM-Fujiexit GM-AmGen/Hummerexiting Ford-Jaguarexit Ford-Land Roverexit Ford-Aston Martinexit Ford-Volvoexiting Ford-Mazdasuccess 1 Chrysler-Simcaexit Chrysler-AMCsuccess Fiat-Lanciafailure Fiat-Alfa Romeofailure VW-Skodasuccess 2 VW-Audi success 3 VW-SEATfailure BMW-Roverexit Renault-AMCexit Renault-Nissansuccess 4 Renault-Daciasuccess Daimler-Chrysler etcexit PSA-Simca etcfailure Peugeot-Citroensuccess? Notes: 1: only after many years 2: but Skoda was rebuilt from scratch 3: Piëch has suggested this is not so 4: an alliance, not a merger 45
One qualified forecast for total NA sales (CSM) 46 CSM projects a slow but steady recovery to historic levels
No recovery implies belief in trend reversal! 47 SCRAPPAGE: At present new sales are running below annual scrapped for the first time since World War II
Trend reversal? 48 VMT: Do we think that the current dip in vehicle miles traveled is an issue?
Trend reversal? 49 OWNERSHIP: What might happen to end the growth in cars per household?
Trend reversal? 50 AFFORDABILITY: With any reasonable elasticity of demand assumed, sales seem likely to rise Most affordable score since the index was first computed in 1979!
What about the outlook for individual OEMs? (1) 51 All else being equal, nothing tracks/forecasts OEM market share as well as average age of an OEMs model lineup.
What about the outlook for individual OEMs? (2) 52 If this relationship holds, Detroits market share should continue to slip, all else being equal
Results by OEM, for 2013 53 Brand Current share % Expected change Resultant 2013 share % Comments GM20-515Organic and M&A Ford16+319Newest line Chrysler10-64Viable? Fiat role? USA 346-838Tied with J3 Toyota16+117Slowing Honda11+314Efficient engines Nissan7+18Slowing Japan 334+539Tied with USA 3 Hyundai/Kia7+310Economical Europeans707VW BMW, MB Other606Mostly Japanese Total1000
Forecast summary: Demand does return to normal, though it will take time We will move from a Big 3 to a Big 6 (Europeanization): More balance, more market share to/fro versus steady trends Finally, a focus on profits rather than on volumes Hopefully, much clearer brand propositions (pull vs. push) As for Detroit, one view is that GM is okay unless it backslides; Ford is likely to gain thanks to product offensive (kudos to Mazda?); Chryslers fate hangs on Fiat et al.
Lessons from the fall: general business insights How we got here: eerily similar to the housing and financial crisis 55 IndustryShortMediumLong AutoExcess debt Truck boomForm trumps function; scale wins HousingExcess debt Long GDP b.House prices can only go up FinanceExcess debt Derivative b.Markets are not correlated
Economic Outlook Auto production = jobs Jobs = political stability Stability = governments spend £ ¥ $ –Countries WITHOUT auto industry spend to get –Countries WITH auto industry spend to defend Excess investment = excess capacity Excess capacity = persistent overproduction
By 2020 it is likely the electric vehicle market will still be small An increasing proportion of cars will be hybrids. Further improvements in traditional combustion engines to make them even more fuel efficient
Lessons to be Learned Lessons from all this might include: –Watch your debt load and stress test it for extreme scenarios! –Do not be distracted by the latest big trend (trends end)! –Challenge beliefs that everyone knows are true: they may not be! Looking ahead – Industry requires vision
Winners & losers Challenge for future auto executives: Demand should = Production Customer loyalty is KEY There is a real need for VISION R & D is vital